Higher borrowing costs are likely should the surge in swap rates continue
Octane Capital CEO Jonathan Samuels, has warned homebuyers that it’s not just an increase in stamp duty that they may have to contend with, as mortgage rates could start to climb following the Autumn Statement following a spike in swap rates.
Last week’s Autumn Statement was a largely lacklustre one for the UK property market, with no real ambition shown by the government to supercharge the current recovery of the market following a turbulent period caused by higher mortgage rates.
Whilst second homeowners and landlords escaped a hike in Capital Gains Tax, they have been hit with a 2% increase in Stamp Duty Land Tax, with existing and first-time buyers also seeing no extension granted to current relief thresholds which are due to expire from March of next year.
However, an analysis of the swap rates market by Octane Capital suggests that homebuyers could see the cost of purchasing increase sooner than March 2025, due to a potential increase in mortgage rates and the cost of borrowing.
Samuels commented: “The Autumn Statement wasn’t well received by the bonds markets and gilt yields shot up almost immediately, with bond investors understandably concerned about the amount of borrowing announced given that it was more than expected.”
The analysis by Octane Capital shows that the average 1 year swap rate increased by 0.03% to 4.543% the Thursday following the Budget, whilst the average 5 year swap rate was up 0.05% to 4.277%.
Whilst they had eased marginally by Friday 1st November, they remained higher than the pre-Budget benchmark, with the 1 year rate at 4.529 and the 5 year rate at 4.268.
However, as of Monday (4th November), they had surged again, with the 1 year rate hitting 4.551 and the 5 year rate climbing to 4.287, with both exceeding the increased rate seen the Thursday following the Autumn Statement.
This is the highest 1 year rate seen since 2nd September, whilst the last time the 5 year rate was this high was back on 1st July.
Samuels continued: “The mortgage market had been heading very much in the right direction following a very tough period and so the hope is that this initial increase in swap rates is an overreaction rather than the first of a series of bond hikes like that seen following the Truss Mini Budget.
"The hike to second home stamp duty charges certainly won’t help the situation though and should landlords also see the cost of borrowing climb along with mortgage rates, a double-pronged increase in investment costs could give the private rental market a very negative jolt.”